Reports suggest continued N.Z. debt

Press, 31 August 1984, Page 3

Reports suggest continued N.Z. debt

By

MICHAEL HANNAH

in Wellington

Improvements in the economies of New Zealand’s trading partners would not prevent sizeable deficits in New Zealand’s balance of payments for the next two years, the Labour Government has been told by its advisers.

Both the Treasury and the Reserve Bank considered that growth in the international economy would have limited benefits for New Zealand because export prices for pastoral products were expected to remain “flat.”

. Both pointed to the internal costs of sheep and beef export industries and the decline in export prices as weaknesses which would offset the general recovery overseas.

The Treasury considered that the main influences in the decline in farm incomes were increases in on-farm and processing costs and depressed returns on overseas markets.

It said the wage-price freeze had improved export competitiveness by reducing the growth in wage rates relative to rates among trading partners. While base-load manufacturing export volumes were expected to grow 10 per cent in 1983-84 and this growth sustained in 1984-85, the Treasury warned that the competitiveness of New Zealand exporters and import substitution industries would be eroded if growth in the money supply, credit, nd fi ’ it

and the fiscal deficit were allowed to continue and add to inflationary pressures. The Government was told that a poor combination of monetary, fiscal, and exchange rate policies could seriously depress economic performance. They could generate one or more of spiralling inflation, escalating debt burdens, a poor exporting and import substituting performance, recurring foreign exchange crisis, very high current and/or future tax rates, and substantially reduced incentives- to save and invest productively in the domestic economy.

The persistent external deficits since 1973-74 and rises in unemployment since then clearly indicated that the domestic cost structure was too high.